BRICS nations on 15 July 2014 signed a deal to create a new 100 billion US dollar development bank and emergency reserve fund. The deal to from the bank was signed during the 6th BRICS Summit being held in Fortaleza, Brazil form 15 July to 16 July 2014. BRICS group includes Brazil, Russia, India, China and South Africa.
Creation of the bank was announced after a plenary meet at a BRICS summit meet by Brazil’s President, Dilma Rousseff.
The founding treaty for the New Development Bank and the Contingency Reserve Agreement were signed by the economy ministers of the member nations. Initially, the bank will start off with 50 billion dollars in initial capital with the five BRICS putting in 10 billion US dollars each.
As per the deal, the capital of the bank will be split equally among the five participating countries, while headquarter will be in Shanghai, China. The Bank will have a rotating chair and its first President will come from India for the first six years. The Bank will also have a regional office in Johannesburg, South Africa.
The Bank’s board will have five Finance Ministers and will be chaired by Brazil. Initially the bank will be involved in infrastructure projects in the BRICS nations.
BRICS Finance ministers or central banks’ governors will form a governing body to manage the CRA while it will be presided over by the BRICS President. The BRICS CRA will not be open to outsiders.
Participant leaders of the five nations are
• Brazil - Dilma Rousseff
• Russian - Vladimir Putin
• Indian - Narendra Modi
• China - Xi Jinping
• South Africa - Jacob Zuma
Contribution of different nations
• China will contribute 41 billion US dollar
• Brazil, Russia and India will contribute 18 billion US dollar each
• South Africa will provide 5 billion US dollar
Future impacts of the deal
The establishment of the 100 billion US dollars development bank will help the developing nations to avoid
a) Short term liquidity pressures
b) Promote further BRICS cooperation
c) Strengthen the global financial safety net
d) Complement existing international arrangements
The deal on the establishment of the bank is a major victory for India because
• The idea of creation of BRICS Bank was proposed by India during the 2012 Summit held in New Delhi
• This is precursor to the longstanding demand of India to reform the World Bank and International Monetary Fund which does not give developing nations enough voting rights
• The equal sharing of 100 billion US dollars by the founding members meets India’s demand which emphasised to prevent domination by anyone of the members
When: 15 July 2014